<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _________________ TO _______________
-----------------------
COMMISSION FILE NUMBER 000 - 26933
LIONBRIDGE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3398462
(State of Incorporation) (I.R.S. Employer
Identification No.)
950 Winter Street, Waltham, MA 02451
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: 781-434-6000
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports).
Yes X No
----- -----
Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's common stock, par value
$0.01 per share, as of April 30, 2000 was 16,650,162.
================================================================================
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 ........................................ 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2000 and 1999.................... 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and 1999.................... 5
Notes to Consolidated Financial Statements (unaudited) ....... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ... 14
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds .................... 14
ITEM 6. Exhibits and Reports on Form 8-K ............................. 14
SIGNATURES...................................................................... 15
EXHIBIT INDEX .................................................................. 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except number of shares)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 7,243 $ 11,537
Accounts receivable, net of allowances of $719 and $698 at
March 31, 2000 and December 31, 1999, respectively ................. 9,272 8,918
Work in process ......................................................... 5,133 3,705
Other current assets .................................................... 916 634
-------- --------
Total current assets ............................................... 22,564 24,794
Property and equipment, net ............................................. 2,377 2,171
Goodwill and other intangible assets, net ............................... 8,633 8,288
Other assets ............................................................ 1,196 359
-------- --------
Total assets ....................................................... $ 34,770 $ 35,612
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Amounts owed to banks ................................................... $ 194 $ --
Short-term debt ......................................................... 7,341 6,593
Capital lease obligations ............................................... 366 231
Accounts payable ........................................................ 5,501 4,667
Accrued compensation and benefits ....................................... 2,231 2,985
Accrued outsourcing expenses ............................................ 3,031 1,956
Other accrued expenses .................................................. 2,846 2,505
Deferred revenue ........................................................ 2,159 2,524
-------- --------
Total current liabilities .......................................... 23,669 21,461
-------- --------
Capital lease obligations ..................................................... 584 17
Long-term debt ................................................................ 5,981 6,731
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares
issued and outstanding ............................................. -- --
Common stock, $0.01 par value; 100,000,000 shares authorized; 16,623,209
and 16,561,705 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively .................................... 166 166
Additional paid-in capital .............................................. 42,102 42,085
Accumulated deficit ..................................................... (35,764) (32,495)
Deferred compensation ................................................... (2,576) (2,837)
Accumulated other comprehensive income .................................. 608 484
-------- --------
Total stockholders' equity ......................................... 4,536 7,403
-------- --------
Total liabilities and stockholders' equity ......................... $ 34,770 $ 35,612
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue ..................................................... $ 17,006 $ 11,690
Cost of revenue ............................................. 12,013 8,068
-------- --------
Gross profit ..................................... 4,993 3,622
-------- --------
Operating expenses:
Sales and marketing ................................... 1,813 1,172
General and administrative ............................ 4,073 3,233
Research and development .............................. 625 127
Amortization of acquisition-related intangible assets.. 762 766
Stock-based compensation .............................. 216 45
-------- --------
Total operating expenses ......................... 7,489 5,343
-------- --------
Loss from operations ........................................ (2,496) (1,721)
Interest expense:
Interest on outstanding debt .......................... (341) (385)
Accretion of discount on subordinated notes payable ... -- (1,083)
Other income (expense), net ................................. (228) (181)
-------- --------
Loss before income taxes .................................... (3,065) (3,370)
Provision for income taxes .................................. 204 45
-------- --------
Net loss .................................................... (3,269) (3,415)
Accrued dividends on preferred stock ........................ -- (265)
-------- --------
Net loss attributable to common stockholders ................ $ (3,269) $ (3,680)
======== ========
Basic and diluted net loss per share attributable to
common stockholders ....................................... $ (0.20) $ (1.76)
Shares used in computing basic and diluted net loss per
share attributable to common stockholders ................. 16,603 2,094
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $(3,269) $(3,415)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of acquisition-related intangible assets.................... 762 766
Compensation expense for stock options granted........................... 216 45
Accretion of discount on subordinated notes payable...................... -- 1,083
Depreciation and amortization of property and equipment.................. 398 360
Provision for doubtful accounts.......................................... 31 21
Foreign currency loss on intercompany transactions....................... 342 305
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable................................................. (662) 270
Work in process..................................................... 355 (741)
Other current assets................................................ (300) (333)
Other assets........................................................ (295) 141
Accounts payable.................................................... 925 882
Accrued compensation and benefits................................... (754) (1,310)
Other accrued expenses.............................................. 1,136 688
Deferred revenue.................................................... (339) (121)
------- -------
Net cash used in operating activities.......................... (1,454) (1,359)
------- -------
Cash flows from investing activities:
Purchases of property and equipment........................................... (471) (250)
Proceeds from sales of property and equipment under sale
leaseback arrangements....................................................... 838 --
Payments for acquisitions, net of cash acquired............................... (3,221) (3,590)
------- -------
Net cash used in investing activities.......................... (2,854) (3,840)
------- -------
Cash flows from financing activities:
Net increase (decrease) in amounts owed to banks.............................. 194 (205)
Net decrease in short-term debt .............................................. -- (3,500)
Payments of capital lease obligations......................................... (126) --
Proceeds from issuance of long-term debt...................................... -- 12,000
Proceeds from exercise of stock options....................................... 34 40
------- -------
Net cash provided by financing activities...................... 102 8,335
------- -------
Net increase (decrease) in cash and cash equivalents............................... (4,206) 3,136
Effects of exchange rate changes on cash and cash equivalents...................... (88) (66)
Cash and cash equivalents at beginning of period................................... 11,537 732
------- -------
Cash and cash equivalents at end of period......................................... $ 7,243 $ 3,802
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL INFORMATION
The accompanying consolidated financial statements include the accounts of
Lionbridge Technologies, Inc. and its wholly owned subsidiaries (collectively,
"Lionbridge" or "the Company"). These financial statements are unaudited.
However, in the opinion of management, the consolidated financial statements
include all adjustments, consisting of only normal, recurring adjustments,
necessary for their fair presentation. Interim results are not necessarily
indicative of results expected for a full year. The accompanying unaudited
consolidated financial statements have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not include all information and
footnotes necessary for a complete presentation of the operations, financial
position and cash flows of the Company in conformity with generally accepted
accounting principles. The Company filed audited consolidated financial
statements for the year ended December 31, 1999 in its Annual Report on Form
10-K, which included all information and footnotes necessary for such
presentation.
The Company's preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Estimates are used when accounting for collectibility of receivables,
calculating revenue using the percentage-of-completion method, and valuing
intangible assets, deferred tax assets and net assets of businesses acquired.
Actual results could differ from these estimates.
2. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
Basic net loss per share attributable to common stockholders is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding. There is no difference between
basic and diluted earnings per share since potential common shares from the
exercises of stock options and warrants are anti-dilutive for all periods
presented. Options to purchase 2,682,318 and 2,387,252 shares of common stock
and warrants to purchase 83,334 and 1,616,594 shares of common stock were
outstanding as of March 31, 2000 and 1999, respectively, but were not included
in the calculation of diluted net loss per share attributable to common
stockholders because the effect of their inclusion would have been
anti-dilutive.
3. PURCHASE OF ASSETS
On January 17, 2000, Lionbridge acquired certain assets of the language
services operation of Nortel Networks Corporation in Montreal and Ottawa,
Canada; Beijing, China; Sao Paulo, Brazil; and Bogota, Colombia for cash of
$2,476,000. In connection with the purchase, Nortel Networks awarded a
preferred vendor designation to Lionbridge as part of a three-year services
agreement, under which Lionbridge will provide a full range of translation
and localization services for Nortel. The purchase agreement provides for
certain contingent payments to be made by Lionbridge, dependent on the level
of revenues generated under the services agreement over the three-year
period. The transaction was accounted for using the purchase method of
accounting. The purchase price was allocated based on the fair values of the
acquired assets and assumed liabilities, as follows:
Current assets................................... $1,693,000
Current liabilities.............................. (57,000)
Property and equipment........................... 140,000
Intangible assets................................ 500,000
Goodwill......................................... 200,000
----------
$2,476,000
==========
The initial calculation of goodwill did not include any contingent
consideration. Future payments, if any, under the contingent payment arrangement
will increase goodwill. The initial calculation of goodwill is subject to
adjustment until
6
<PAGE>
certain additional information on the valuation of intangible assets acquired
is finalized. The goodwill and acquired intangible assets are being amortized
on a straight-line basis over five years. The results of the operations
acquired are included in Lionbridge's financial statements from the date of
the asset purchase. Pro forma consolidated results of operations would not
differ materially from reported results.
4. BUSINESS ACQUISITIONS
In January 2000, Lionbridge entered into an agreement which was amended and
restated in March 2000 to acquire INT'L.com, Inc., a company based in
Framingham, Massachusetts, with operations in the United States, France, The
Netherlands, Germany and China. The stock-for-stock transaction is intended
to be tax-free, accounted for as a pooling of interests. Lionbridge will
issue approximately 8,201,082 shares of its common stock in exchange for all
of the capital stock, convertible debt and subordinated debt of INT'L.com.
Any outstanding options to acquire INT'L.com common stock will be assumed by
Lionbridge at the time of the merger and it is estimated that such options
will provide the right to purchase approximately 753,926 shares of Lionbridge
common stock. The acquisition is expected to be consummated in May 2000.
In March 2000, Lionbridge entered into an agreement to acquire Harvard
Translations, Inc., a company based in Cambridge, Massachusetts, with
operations in the United States. The stock-for-stock transaction is intended
to be tax-free, accounted for as a pooling of interests. Lionbridge will
issue approximately 282,000 shares of its common stock in exchange for all
the capital stock of Harvard Translations. Any outstanding options to
purchase Harvard Translations common stock will be assumed by Lionbridge at
the time of the merger and it is estimated that such options will provide the
right to purchase approximately 104,000 shares of Lionbridge common stock.
The acquisition is expected to be consummated in May 2000.
As of March 31, 2000, Lionbridge had incurred approximately $727,000 of
prepaid merger-related expenses relating to the INT'L.com and Harvard
Translations acquisitions, primarily consisting of fees for professional
advisory services. These expenses are being deferred until consummation of
the respective mergers and are included in other long-term assets on the
balance sheet at March 31, 2000.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Computer software and equipment............................ $ 4,756,000 $ 4,360,000
Furniture and office equipment............................. 948,000 857,000
Leasehold improvements..................................... 466,000 431,000
----------- -----------
6,170,000 5,648,000
Less: accumulated depreciation and amortization........... (3,793,000) (3,477,000)
----------- -----------
$ 2,377,000 $ 2,171,000
=========== ===========
</TABLE>
6. DEBT
LINE OF CREDIT
Lionbridge has a line of credit arrangement with a commercial bank, which
expires on May 20, 2000. Under the amended terms of the agreement, Lionbridge
may borrow up to $8,000,000, based on the value of certain eligible current
assets worldwide. The interest rate payable on any outstanding borrowings is
prime plus 1% per year (10.0% and 9.5% at March 31, 2000 and December 31, 1999,
respectively). Borrowings outstanding under the line of credit
7
<PAGE>
agreement are collateralized by certain assets of Lionbridge. The amount
outstanding on the line of credit at March 31, 2000 and December 31, 1999 was
$6,593,000.
The agreement requires Lionbridge to maintain certain financial ratios and
restricts the payment of dividends. As of March 31, 2000, Lionbridge was in
compliance with the financial covenants as amended by the bank.
SUBORDINATED NOTES
Lionbridge has entered into two subordinated debt agreements pursuant to
which 12% senior subordinated notes were issued. The outstanding aggregate
principal amount of such notes, together with all accrued and unpaid interest
thereon, is required to be repaid upon the earlier of August 25, 2001 or an
underwritten public offering by Lionbridge with aggregate proceeds of at
least $10,000,000. The notes are subject to certain covenant restrictions and
are collateralized by certain assets of Lionbridge. The terms of the
subordinated debt agreement prohibits Lionbridge from paying dividends to its
stockholders. As of March 31, 2000 and December 31, 1999, $5,981,000 was
outstanding under these subordinated notes.
7. COMPREHENSIVE LOSS
Total comprehensive loss was approximately $3,145,000 and $3,415,000 for the
three-month periods ended March 31, 2000 and 1999, respectively, which consists
of net loss and the net change in foreign currency translation adjustment. This
calculation is in accordance with the requirements of SFAS No. 130, "Reporting
Comprehensive Income," and has no impact on the Company's net losses or
stockholders' equity.
8. SEGMENT INFORMATION
Lionbridge has determined that its operating segments are those that are based
on its method of internal reporting, which separately presents its business by
the geographic site in which services are performed. Lionbridge has combined
those segments which meet the aggregation criteria of SFAS No.
131 in determining its reportable segments.
The Company's reportable segments are Localization and Testing. The Localization
segment provides globalization services, including translation, software
localization, internationalization engineering and multilingual technical
publishing, that enable simultaneous worldwide release and ongoing maintenance
of products and related technical support, training materials, and sales and
marketing information in multiple languages. The Testing segment provides
localization and internationalization testing of software, hardware and
telecommunications equipment, as well as logo certification programs. All other
unallocated enterprise costs are reflected in the "Corporate and Other"
category.
The table below presents information about the reported net loss of
Lionbridge for the three-month periods ended March 31, 2000 and 1999. Asset
information by segment is not reported, since such information is not
produced internally by Lionbridge.
<TABLE>
<CAPTION>
Corporate and
Localization Testing Other Eliminations Total
------------ ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
2000
External revenue..................... $14,497,000 $2,509,000 $ -- $17,006,000
=========== ========== =========== ===========
Inter-segment revenue................ $ -- $ 27,000 $ -- $ (27,000) $ --
=========== ========== =========== ========== ===========
Net income (loss).................... $ 1,666,000 $ 352,000 $(5,287,000) $(3,269,000)
=========== ========== =========== ===========
1999
External revenue..................... $10,322,000 $1,368,000 $ -- $11,690,000
=========== ========== =========== ===========
Inter-segment revenue................ $ -- $ 135,000 $ -- $ (135,000) $ --
=========== ========== =========== ========== ===========
Net income (loss) ................... $ 82,000 $ 88,000 $(3,585,000) $(3,415,000)
=========== ========== =========== ===========
</TABLE>
8
<PAGE>
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
2000 1999
---- ----
<S> <C> <C>
Lionbridge purchased all of the outstanding capital stock of
VeriTest, Inc. for $4,354,000, effective January 11, 1999.
In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired and goodwill....................... $ 5,035,000
Cash paid for capital stock...................................... (3,260,000)
Common stock issued.............................................. (344,000)
Notes issued..................................................... (750,000)
-----------
Liabilities assumed.............................................. $ 681,000
===========
Lionbridge acquired certain assets of the language services
operation of Nortel Networks Corporation for $2,476,000,
effective January 17, 2000. In conjunction with the
purchase, liabilities were assumed as follows:
Fair value of assets acquired and goodwill....................... $ 2,533,000
Cash paid for assets acquired.................................... (2,476,000)
-----------
Liabilities assumed.............................................. $ 57,000
===========
Purchases of property and equipment under capital lease
arrangements................................................... $ 838,000
===========
</TABLE>
10. NEW ACCOUNTING PRONOUNCEMENT
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and, among other issues,
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN
44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to
have a material impact on the Company's financial position or results of
operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this Form 10-Q include forward-looking statements
that involve risks or uncertainties. These statements are based on various
assumptions by management regarding future circumstances over many of which
Lionbridge has little or no control. A number of important factors, including
those identified under the caption "Factors That May Affect Future Results"
in Lionbridge's Annual Report on Form 10-K (SEC File No. 000-26933) and
Registration Statement on Form S-4 (SEC File No. 333-33750) as well as
factors discussed elsewhere in this Form 10-Q, could cause Lionbridge's
actual results to differ materially from those in forward-looking statements
or financial information. Actual results may differ from forward-looking
results for a number of reasons, including the following: (i) changes in the
demand for our services; (ii) the delay of one of our clients' product
releases or the loss of a major client; (iii) our ability to attract and
retain professional staff; (iv) Lionbridge's ability to manage its growth;
(v) our potential liability for defects or errors in the solutions we
develop; (vi) our potential failure to keep pace with changing technologies;
(vii) the entry of additional competitors into the marketplace; (viii) market
acceptance of new service offerings; (ix) foreign currency fluctuations; (x)
political, economic and business fluctuations in international markets; (xi)
difficulties Lionbridge may encounter in the integration of INT'L.com and
Harvard Translations; (xii) future acquisitions (including the potential
diversion of management attention and financial resources and the ability of
acquired businesses to achieve satisfactory operating results); and (xiii)
downturns in economic conditions generally. Should one or more of these risks
or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated or projected.
OVERVIEW
GENERAL. Lionbridge is a provider of globalization and multilingual Internet
services to industry-leading software publishers, computer hardware
manufacturers, and telecommunications companies. Since 1996, we have focused
primarily on globalization services, including localization,
internationalization, and testing, that enable simultaneous worldwide release
and ongoing maintenance of products and product-related technical support,
training materials, and sales and marketing information in multiple languages.
As product release, technical support, and training have evolved toward a
Web-based business model, we are now offering multilingual Internet services.
Lionbridge's revenues are generally derived from fees for services generated on
a project-by-project basis. Projects are generally billed on a time and
materials basis. Revenue is recognized using the percentage-of-completion method
of accounting, based on management's estimate of progress against the project
plan. The agreements entered into in connection with projects are generally
terminable by clients upon 30 days' prior written notice. If a client terminates
an agreement, it is required to pay Lionbridge for time and materials incurred
through the termination date. If clients terminate existing projects or if
Lionbridge is unable to enter into new engagements, our financial condition and
results of operations could be materially and adversely affected.
We have grown our business since inception through a combination of
acquisitions, asset purchases and organic growth. These acquisitions and asset
purchases through March 31, 2000 resulted in the recognition of approximately
$15.7 million of goodwill on our balance sheet. This goodwill is being
amortized over five years.
In January 2000, Lionbridge acquired certain assets of the language services
operation of Nortel Networks Corporation in Montreal and Ottawa, Canada;
Beijing, China; Sao Paulo, Brazil; and Bogota, Colombia for cash of $2.5
million. In connection with the purchase, Nortel Networks awarded a preferred
vendor designation to Lionbridge as part of a three-year services agreement,
under which Lionbridge will provide a full range of translation and
localization services for Nortel. The purchase agreement provides for certain
contingent payments to be made by Lionbridge, dependent on the level of
revenues generated under the services agreement over the three-year period.
Lionbridge recorded $200,000 of goodwill related to this acquisition, not
including any additional contingent amounts that may be paid in the future,
which is being amortized over five years. The purchase was accounted for
using the purchase method of accounting.
In January 2000, Lionbridge entered into an agreement which was amended and
restated in March 2000 to acquire INT'L.com, a company based in Framingham,
Massachusetts, with operations in the United States, France, The Netherlands,
Germany and China. The stock-for-stock transaction is intended to be
tax-free, accounted for as a pooling of interests. Lionbridge will issue
approximately 8,201,082 shares of our common stock in exchange for all of the
capital stock, convertible debt and certain subordinated debt of INT'L.com.
Any outstanding options to acquire INT'L.com common stock will be assumed by
Lionbridge at the time of the merger and it is estimated that such options
will provide the right to purchase approximately 753,926 shares of Lionbridge
common stock. The acquisition is expected to be consummated in May 2000.
In March 2000, Lionbridge entered into an agreement to acquire Harvard
Translations, Inc., a company based in Cambridge, Massachusetts, with
operations in the United States. The stock-for-stock transaction is intended
to be tax-free, accounted for as a pooling of interests. Lionbridge will
issue approximately 282,000 shares of
10
<PAGE>
our common stock in exchange for all the capital stock of Harvard
Translations, Inc. Any outstanding options to acquire Harvard Translations
common stock will be assumed by Lionbridge at the time of the merger and it
is estimated that such options will provide the right to purchase
approximately 104,000 shares of Lionbridge common stock. The acquisition is
expected to be consummated in May 2000.
NON-CASH CHARGES
DEFERRED COMPENSATION. Lionbridge recorded deferred compensation of
approximately $3.8 million in 1999, representing the difference between the
exercise price of stock options granted and the fair market value for
accounting purposes of the underlying common stock at the date of the grant.
The deferred compensation is being amortized over the four-year vesting
period of the applicable options. Of the total deferred compensation amount,
$946,000 had been amortized and $281,000 had been reversed due to
cancellation of the underlying options as of March 31, 2000. The amortization
of deferred compensation is recorded as an operating expense. We currently
expect to amortize the following remaining amounts of deferred compensation
as of March 31, 2000 in the fiscal periods ending:
December 31, 2000 $ 638,000
December 31, 2001 850,000
December 31, 2002 850,000
December 31, 2003 238,000
----------
$2,576,000
==========
ORIGINAL ISSUE DISCOUNT ON SUBORDINATED NOTES. Interest expense for the three
months ended March 31, 1999 includes $1.1 million for the accretion of the
original issue discount on $12.0 million of subordinated notes issued in that
period. This discount represents the $6.0 million value attributable to
detachable warrants to purchase 1,533,260 shares of common stock, at an exercise
price of $0.015 per share, granted in connection with this debt financing. As we
were previously required to repay the subordinated notes in full upon the
closing of our initial public offering, we recorded the expense of this discount
on a straight-line basis over a six-month period from date of debt issuance to
the date by which we expected the initial public offering to occur. Pursuant to
an amendment of the debt agreements effective August 19, 1999, Lionbridge was
required to redeem only $6.0 million of the subordinated notes upon the closing
of the initial public offering.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating data
associated with the Company's results of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
----------------------------
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
<S> <C> <C>
Revenue ..................................................... 100.0% 100.0%
Cost of revenue ............................................. 70.6 69.0
----- -----
Gross profit ..................................... 29.4 31.0
Operating expenses:
Sales and marketing ................................... 10.7 10.0
General and administrative ............................ 23.9 27.6
Research and development .............................. 3.7 1.1
Amortization of acquisition-related intangible assets.. 4.5 6.6
Stock-based compensation .............................. 1.3 0.4
----- -----
Total operating expenses ......................... 44.1 45.7
Loss from operations ........................................ (14.7) (14.7)
Interest expense ............................................ (2.0) (12.6)
Other income (expense), net ................................. (1.3) (1.5)
----- -----
Loss before income taxes .................................... (18.0) (28.8)
Provision for income taxes .................................. 1.2 0.4
----- -----
Net loss .................................................... (19.2)% (29.2)%
===== =====
</TABLE>
11
<PAGE>
REVENUE. Revenue for the quarter ended March 31, 2000 was $17.0 million
compared to revenue of $11.7 million for the quarter ended March 31, 1999, an
increase of $5.3 million or 45.5%. This increase is primarily due to larger
project size in the three months ended March 31, 2000 as evidenced by a 49%
increase in the average revenue earned from the top fifty customers for the
first quarter of 2000 as compared to the first quarter of 1999. In addition,
the three-month period ended March 31, 2000 also includes approximately $3.1
million of revenue from our expanded relationship with Nortel.
COST OF REVENUE. Cost of revenue consists primarily of outsourcing expense
incurred for translation services provided by third parties as well as salaries
and associated employee benefits for personnel related to client projects. As a
percentage of revenue, cost of revenue remained relatively consistent from
period to period.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and associated employee benefits, travel expenses of
sales and marketing personnel, and promotional expenses. Sales and marketing
costs increased 54.7% to $1.8 million in the first quarter of 2000 from $1.2
million in the first quarter of 1999. This increase was partially
attributable to expenses associated with having 8 additional sales personnel
employed over the number employed in the first quarter of 1999. Additionally,
the cost of marketing programs increased $210,000, largely due to increased
expenditures for public relations and other customer-focused activities. As a
percentage of revenue, sales and marketing expenses were 10.7% of revenue for
the three months ended March 31, 2000, approximately the same level
experienced during the first quarter of 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
salaries of the management, purchasing, process and technology, finance and
administrative groups, and associated employee benefits; facilities costs,
including depreciation and amortization; information systems costs; professional
fees; travel; and all other site and corporate costs. General and administrative
expenses increased 26.0% to $4.1 million for the three months ended March 31,
2000 from $3.2 million for the three months ended March 31, 1999. This increase
was principally due to increased headcount in the management and finance groups
as well as general corporate expenses. As a percentage of revenue, general and
administrative expenses decreased to 23.9% from 27.6% for the three months ended
March 31, 2000 and 1999, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses relate to
LIONTRACK -TM-, our proprietary internal workflow system, and include
salaries and associated employee benefits, equipment depreciation and
third-party contractor expenses. Research and development expense increased
392% to $625,000 for the three months ended March 31, 2000 from $127,000 for
the corresponding three months of the preceding year, reflecting the
establishment of this unit during the first quarter of 1999.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization of
acquisition-related intangible assets consists of amortization of goodwill
and other intangible assets resulting from acquired businesses. Amortization
expense was $762,000 for the three months ended March 31, 2000, consistent
with the $766,000 level of the three months ended March 31, 1999.
INTEREST EXPENSE. Interest expense represents interest payable on debt and, in
1999, the accretion of original issue discount on subordinated notes with
detachable warrants. Interest expense decreased to $341,000 for the three months
ended March 31, 2000 as compared to $1.5 million for the corresponding three
months of the prior year. This decrease is primarily due to the inclusion in the
first quarter of 1999 of $1.1 million of accretion on the original issue
discount on the subordinated notes with detachable warrants issued that year.
The original issue discount was fully amortized in 1999. The remaining expense
represents interest incurred on our commercial credit facility as well as the
notes issued in connection with the VeriTest purchase in 1999.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily of
foreign currency transaction gains or losses arising from exchange rate
fluctuations on transactions denominated in currencies other than the local
currencies of the countries in which the transactions are recorded. As a
percentage of revenue, other income (expense), net was 1.3% for the three months
ended March 31, 2000, approximately the same as the 1.5% level during the
corresponding three months of 1999.
12
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes in the three-month
periods ended March 31, 2000 and 1999 represents taxes generated in foreign
jurisdictions for which U.S. tax credit utilization is currently uncertain. No
tax benefit was recorded for losses generated during these periods due to the
uncertainty of realizing any benefit.
LIQUIDITY AND CAPITAL RESOURCES
We have a commercial credit facility that allows Lionbridge to borrow up to
$8.0 million and that expires on May 20, 2000. The facility requires
Lionbridge to maintain financial ratios and restricts the payment of
dividends. The facility bears interest at the bank's prime rate plus 1%
(10.0% at March 31, 2000) and is collateralized by worldwide accounts
receivable and work in process. As of March 31, 2000, $6.6 million was
outstanding under the facility. We anticipate that the facility will be
renewed at terms substantially similar to those under the present arrangement.
Cash and cash equivalents decreased to $7.2 million at March 31, 2000 from
$11.5 million at December 31, 1999. Net cash used in operating activities was
$1.5 million and $1.4 million for the three-month periods ended March 31,
2000 and 1999, respectively. This increase was attributable to funding of
operating losses resulting from our continued investment in our expanding
business. Net cash used in investing activities was $2.9 million for the
three months ended March 31, 2000 as compared to $3.8 million for the
corresponding period of 1999. Investing activities for these periods were
primarily purchases of equipment and the acquisitions of Nortel Network's
language services operation in 2000 and VeriTest in 1999, offset by proceeds
of $838,000 from the sale of property and equipment under sale-leaseback
arrangements. Net cash provided by financing activities was $102,000 and $8.3
million in the first three months of 2000 and 1999, respectively. The primary
financing activity was the issuance of the subordinated debt in 1999.
As of March 31, 2000, we had $1.4 million available for borrowing under our bank
line of credit. Our future financing requirements will depend upon a number of
factors, including our operating performance and increases in operating expenses
associated with growth in our business. We anticipate that our present cash
position and available financing should provide adequate cash to fund our
currently anticipated cash needs through at least the next 12 months. We cannot
be assured that additional financing, if needed, will be available to Lionbridge
at terms acceptable to us, if at all.
NEW ACCOUNTING PRONOUNCEMENT
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and, among other issues,
clarifies the following: the definition of an employee for purposes of
applying APB Opinion No. 25; the criteria for determining whether a plan
qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN
44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company does not expect the application of FIN 44 to
have a material impact on the Company's financial position or results of
operations.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about Lionbridge's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. We are exposed to market risk
related to changes in interest rates and foreign currency exchange rates. We
do not use derivative financial instruments for speculative or trading
purposes.
INTEREST RATE RISK. Lionbridge is exposed to market risk from changes in
interest rates primarily through its investing activities. In addition, our
ability to finance future acquisition transactions may be impacted if we are
unable to obtain appropriate financing at acceptable rates. Our investment
portfolio consists solely of investments in high-grade, commercial bank money
market accounts.
FOREIGN CURRENCY EXCHANGE RATE RISK. The majority of our contracts with
clients are denominated in U.S. dollars. However, 62% and 64% of our costs
and expenses for the three months ended March 31, 2000 and 1999,
respectively, were denominated in foreign currencies. 58% and 52% of our
assets were recorded in foreign currencies as of March 31, 2000 and December
31, 1999, respectively. 34% and 29% of our liabilities were recorded in
foreign currencies as of March 31, 2000 and December 31, 1999, respectively.
Therefore, we are exposed to foreign currency exchange risks. We have not
historically tried to reduce our exposure to exchange rate fluctuations by
using hedging transactions. However, we may choose to do so in the future. We
may not be able to do this successfully. Accordingly, we may experience
economic loss and a negative impact on earnings and equity as a result of
foreign currency exchange rate fluctuations.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 20, 1999, we commenced our initial public offering of 3,500,000
shares of common stock (4,025,000 shares including 525,000 over-allotment
shares offered by selling stockholders and Lionbridge), $.01 par value per
share, pursuant to our final prospectus dated August 20, 1999. That prospectus
was contained in Lionbridge's Registration Statement on Form S-1, which was
declared effective by the Securities and Exchange Commission (SEC File No.
333-81233) on August 20, 1999. Of the 4,025,000 shares of common stock
offered, 3,798,000 were offered and sold, 3,500,000 shares by Lionbridge and
298,000 shares by certain stockholders of Lionbridge. The initial public
offering closed on August 25, 1999 as to the shares offered and sold by
Lionbridge and on September 10, 1999 as to the shares offered and sold by the
selling stockholders.
The aggregate offering price of the initial public offering to the public was
approximately $38.0 million, with proceeds to Lionbridge and the selling
stockholders, after deduction of underwriting discounts and commissions, of
$33.1 million and $2.8 million, respectively. The aggregate amount of
expenses incurred by Lionbridge through March 31, 2000, in connection with the
issuance and distribution of the shares of common stock offered and sold
in the initial public offering was approximately $3.2 million, including
approximately $1.9 million in underwriting discounts and commissions and $1.3
million in other expenses. None of the expenses paid by Lionbridge in
connection with the initial public offering or the exercise of the
overallotment option were paid, directly or indirectly, to directors,
officers, persons owning 10% or more of Lionbridge's equity securities, or
affiliates of Lionbridge. Prudential Securities Incorporated, U.S. Bancorp
Piper Jaffray Inc. and Adams, Harkness & Hill, Inc. acted as underwriters for
the initial public offering.
The primary purposes of the initial public offering were to obtain additional
capital, create a public market for Lionbridge's common stock, provide
liquidity to existing stockholders and optionholders, create a currency for
future acquisitions and facilitate future access to public markets.
Lionbridge used $16.1 million of the offering proceeds to redeem shares of
Series B redeemable preferred stock, $6.0 million to repay subordinated
notes, $2.5 million to purchase certain assets of the language services
operation of Nortel Networks Corporation, and approximately $1.0 million to
purchase fixed assets. Of these previous amounts, Lionbridge paid
approximately $15.4 million of the net proceeds of the offering to officers
and affiliates of Lionbridge to redeem shares of our Series B redeemable
preferred stock and paid $6.0 million to affiliates of Lionbridge to repay
the senior subordinated notes held by those affiliates. The remainder of the
proceeds are intended to be used for working capital and general corporate
purposes.
The terms of our commercial bank credit facility prohibit the payment of cash
dividends to us by our European subsidiaries and contain other working capital
restrictions. In addition, the terms of our subordinated debt agreements
prohibit us from paying any dividends to our stockholders and also contain other
working capital restrictions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit
Number Description
10.1 Loan Document Modification Agreement Number 7 dated
as of March 20, 2000 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies
B.V., Lionbridge and Silicon Valley Bank (filed as
Exhibit 10.49 to the Registration Statement on Form
S-4, File No. 333-33750, and incorporated by
reference herein).
10.2 Amended and Restated Promissory Note dated as of
March 20, 2000 payable to Silicon Valley Bank (filed
as Exhibit 10.50 to the Registration Statement on
Form S-4, File No. 333-33750, and incorporated by
reference herein).
10.3 Employment Agreement dated March 29, 2000 between
Lionbridge and Roger O. Jeanty (filed as Exhibit
10.51 to the Registration Statement on Form S-4, File
No. 333-33750, and incorporated by reference herein).
10.4 Non-Competition Agreement dated March 28, 2000
between Lionbridge and Roger O. Jeanty (filed as
Exhibit 10.52 to the Registration Statement on Form
S-4, File No. 333-33750, and incorporated by
reference herein).
10.5 Amended and Restated Agreement and Plan of
Reorganization dated March 30, 2000 by and among
Lionbridge, LTI Acquisition Corp. and INT'L.com, Inc.
(filed as Exhibit 10.53 to the Registration Statement
on Form S-4, File No. 333-33750, and incorporated by
reference herein).
10.6 Agreement and Plan of Reorganization dated March 30,
2000 by and among Lionbridge, HT Acquisition Corp.
and Harvard Translations, Inc. (filed as Exhibit
10.54 to the Registration Statement on Form S-4, File
No. 333-33750, and incorporated by reference herein).
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by Lionbridge for the quarter ended
March 31, 2000.
14
<PAGE>
LIONBRIDGE TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIONBRIDGE TECHNOLOGIES, INC.
Dated: May 12, 2000 By: /s/ Stephen J. Lifshatz
-----------------------------------
Stephen J. Lifshatz
Senior Vice President, Chief
Financial Officer (Duly Authorized
Officer and Principal Financial
Officer)
EXHIBIT INDEX
Exhibit
Number Description
10.1 Loan Document Modification Agreement Number 7 dated
as of March 20, 2000 by and among Lionbridge
Technologies Holdings B.V., Lionbridge Technologies
B.V., Lionbridge and Silicon Valley Bank (filed as
Exhibit 10.49 to the Registration Statement on Form
S-4, File No. 333-33750, and incorporated by
reference herein).
10.2 Amended and Restated Promissory Note dated as of
March 20, 2000 payable to Silicon Valley Bank (filed
as Exhibit 10.50 to the Registration Statement on
Form S-4, File No. 333-33750, and incorporated by
reference herein).
10.3 Employment Agreement dated March 29, 2000 between
Lionbridge and Roger O. Jeanty (filed as Exhibit
10.51 to the Registration Statement on Form S-4, File
No. 333-33750, and incorporated by reference herein).
10.4 Non-Competition Agreement dated March 28, 2000
between Lionbridge and Roger O. Jeanty (filed as
Exhibit 10.52 to the Registration Statement on Form
S-4, File No. 333-33750, and incorporated by
reference herein).
10.5 Amended and Restated Agreement and Plan of
Reorganization dated March 30, 2000 by and among
Lionbridge, LTI Acquisition Corp. and INT'L.com, Inc.
(filed as Exhibit 10.53 to the Registration Statement
on Form S-4, File No. 333-33750, and incorporated by
reference herein).
10.6 Agreement and Plan of Reorganization dated March 30,
2000 by and among Lionbridge, HT Acquisition Corp.
and Harvard Translations, Inc. (filed as Exhibit
10.54 to the Registration Statement on Form S-4, File
No. 333-33750, and incorporated by reference herein).
27.1 Financial Data Schedule.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED 3/31/00
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<NAME> LIONBRIDGE TECHNOLOGIES, INC.
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